Invest Without Emotions
Emerging market growth is finally picking up momentum.
New orders rose at the steepest pace since February 2011.
Growth rate of new business inflows strengthened to a 20-month high.
Plus, the Fed is going to keep the QE tap open at least till the 1st half of 2014… Party on!
Source: http://www.markiteconomics.com/
Gautam Chhaochharia, Head of India Research, UBS Securities picked these 9 stocks during an interview in CNBC. The Money Control transcript can be found here.
In typical StockViz tradition, we have created a Theme out of these recommendations so that you can Follow them and see for yourself if they are doodh ya paani.
Theme: UBS Top 9 Dec-2013
Buy a Nifty 6150/6100 Put Spread:
Payoff of Rs. 1,627.50/- for an outlay of Rs. 872.50/-
Mark Twain:
When a great orator makes a great speech you are listening to ten centuries and ten thousand men — but we call it his speech, and really some exceedingly small portion of it is his.
Salvador Dalí:
Those who do not want to imitate anything, produce nothing.
Mark Twain on Plagiarism and Originality: “All Ideas Are Second-Hand”
Not only does poverty make it difficult to focus the mind on multiple pressing issues and distort the process by which we prioritise them; but also the very nature and quantity of these issues reduce the motivation to even start trying.
One conclusion I think can be soundly drawn from these ideas: any traditional notion of “tough love” or “getting tough” on lazy poor people that blames them for their lots in life while downplaying their socioeconomic context is, to a first and second and third approximation, bullshit.
Poverty is bleak and cuts off your long-term brain.
I will never not be poor. It’s not like the sacrifice will result in improved circumstances; the thing holding me back isn’t that I blow five bucks at Wendy’s. It’s that now that I have proven that I am a Poor Person that is all that I am or ever will be. It is not worth it to me to live a bleak life devoid of small pleasures so that one day I can make a single large purchase. I will never have large pleasures to hold on to.
Why I Make Terrible Decisions, or, poverty thoughts
1974 would mark a fundamental breakpoint in American economic history. Productivity has increased by 80%, but median compensation (wages plus benefits) has risen by just 11% during that time. The middle-income jobs of the nation’s postwar boom years have disproportionately vanished. Low-wage jobs have disproportionately burgeoned. Employment has become less secure. Benefits have been cut.
Meet Jordan Belfort: a white-collar crook who duped innocent investors to finance an insatiable greed. Belfort was convicted of scamming more than $100 million throughout the nineties to finance a hedonistic paradise.
After all, it wasn’t every firm that sported hookers in the basement, drug dealers in the parking lot, exotic animals in the boardroom, and midget-tossing competitions on Fridays.
We’re on to Chapter 13 of The Little Book of Behavioral Investing: How not to be your worst enemy and I thank you for your patience in sticking with my enterprise through the last 13 weeks. So… 13 weeks, 13th chapter, and I’m thinking, “13 … doom and despair, huh?” But then, Montier’s words quickly come to mind. Think back to Chapter 5 where he warns us against inadequate research and the folly of giving in to the noise.
So here’s what I did. My belief that the number 13 is associated with all things bad and dark … not that I’m superstitious but the thought is just there … is the remnant of old stories, propaganda, and yeah, some crazy horror flicks. So I checked it out and turns out I’m wrong. According to numerologists, the number 13 means upheaval but it has the power to enhance positive outcomes if change is adapted to gradually. Whad’ya know? Montier’s tips aren’t only helpful for investments!
But back to Chapter 13 and the point of discussion this time is about as challenging as it can get, especially for the modern Indian mindset. That’s my opinion by the way, not Montier’s. So, what would Montier have us learn in this chapter?
It seems shockingly simple but I can vouch a 100 percent that this is going to be an incredibly challenging practice for the investor community where so many suffer from the attention deficit hyperactivity disorder (ADHD).
In the modern world, doing nothing is interpreted as laggardness. While I don’t recommend you become a couch potato in physical terms, you need to be one if you’re a money manager, according to Seth Klarman. Why? Because you’re an investor, not a trader. And a good investor sells and buys only when the time and price is right. Remember the investment plan we discussed in Chapter 2 – prepare, plan, and pre-commit?
Sadly, not many money managers believe in this approach. And if they do, they can’t stick with it because their inaction would be interpreted as inefficiency by their managers and clients. They may also not want to upset the comfortable web they’ve spun for themselves via the prevalent money making mechanics.
People who are seen doing things (as in invested fully, selling and buying every so often) are perceived as more committed and efficient versus those who wait and watch. This perception becomes even more skewed if the investor has recently incurred a loss. While this unexciting investor may actually save dollars and build richer returns in the long run, not many people look beyond the short-term. And that, my dear friends, is the root of the problem.
It is also why I say that the learnings in this chapter may be specially challenging for the Indian mindset. All around, we see examples of short-term palliative measures. Governments use price controls to appease people even though it’s proven they have a detrimental effect in the long run. Government subsidies, free provisions, super low interest loans – sugared pills for vote banks – backlash over time to bite the same group of people. As individuals, we bribe, ignore, and submit to corruption because we’ve become habituated to quick solutions. Obviously, quick money solutions win the top spot for us.
The best investors of the world (and there are many Indians on this list) always look long-term. They are not driven into foolishness by an action bias of their own or external pressure because they’ve learned to be at peace with doing nothing. And the way they do this is by sticking with their investment plan.
To conclude: Get rid of the idea that investing is exciting. It’s not supposed to be. If you really want to make money, wait for the fat pitch. If that makes you the butt of criticism, remember that the road to your dreams is often lonely and rough. Think of all the greats!
Monica Samuel is doing a chapter-wise review of the book: The Little Book of Behavioral Investing: How not to be your worst enemy by James Montier. You can follow the series by following this tag: tlbbinvesting or by subscribing to this rss feed: tlbbifeed
